MPs Examine Role of Media in Economic Crisis

UNCLAS LONDON 000338

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV UK
SUBJECT: MPs Examine Role of Media in Economic Crisis


1. (SBU) As part of its enquiry into the banking crisis, the House
of Commons' Treasury Committee looked at the role of the media in
financial stability and whether financial journalists should operate
under reporting restrictions during banking crises. A committee
specialist told the Embassy this line of enquiry was introduced
because of public interest regarding the role of particular
journalists in the crisis. Journalists have been accused of talking
down the economy and specific institutions, exacerbating the
downturn with doom-mongering. (Anecdotally, we have heard that the
recent snow disruptions provided welcome relief from the usual
incessant economic gloom on the news.) Robert Peston, the BBC's
business editor, faced particular pressure for his role in the
collapse of Northern Rock. In September 2007, Peston broke the
story that Northern Rock requested emergency funding from HMG. His
broadcasts, it was claimed, caused panic amongst the bank's
depositors and sparked a run on its retail deposits. The British
Bankers' Association said Peston acted "injudiciously" during his
reporting on the bank's problems.


2. (U) The media's role in the downturn was highlighted by Richard
Lambert, director-general of the Confederation of British Industry
and former editor of the Financial Times, in a December 2008 speech.
He accused the media of becoming part of the story and said it was
not surprising that one of the most visible, controversial
personalities that emerged from the crisis was not a banker, but a
journalist - Robert Peston. He contrasted the banking crisis of
1973-75 with today's, saying the difference between the two was that
the 70s' crisis took place behind closed doors and did not enter the
public consciousness. He warned the media about the harm of
unsourced quotes and the reporting of unsubstantiated rumors and
said editors should steer clear of melodramatic headlines.


3. (U) As a result of public interest in the media's role, the
Treasury Committee held a hearing with financial journalists: Robert
Peston, the Financial Times editor Lionel Barber, Daily Mail city
editor Alex Brummer, Guardian columnist Simon Jenkins, and Sky News
presenter Jeff Randall on February 4. When asked whether he felt he
had caused the run on Northern Rock, Peston said: "I have obviously
given a lot of thought to this and the answer is no." He said the
bank had a flawed business model and structural problems that left
it particularly vulnerable to a run on its retail deposits, namely a
small number of branches and inadequate server capacity for its
website. He added that a "wholesale run," not a retail one, had
caused the bank to collapse. Alex Brummer, however, said Peston's
"excitable" broadcasts may have contributed to the run, and the tone
of the report could have caused confusion. He said it may have
helped if Peston had a "calm, traditional BBC voice." The witnesses
all denied the need for additional regulation of journalists during
a banking crisis. Jenkins said a new regulatory framework shouldn't
be used to restrict journalists who are trying to act in the public
interest. Barber said regulating the press would not solve the
current problem. Financial instability has been caused by a
"catastrophic failure of management of risk and regulators," not by
media reports, he said.


4. (U) Jenkins told MPs that much of the doom-mongering had been
initiated by HMG. He speculated that HMG used the press to drive
down the share prices of some UK banks, to lower the cost of
recapitalization. He said that financial journalists had found
themselves in a "predicament" during the banking crisis, saying:
"the government, knowing it was about to acquire large chunks of
these banks was, I sense, using the press to force down the share
price." He accused ministers of de facto insider trading. He said
some leaks were "clearly designed to rig the market." His
accusations were fiercely denied by the other witnesses.


5. (U) The British public is unaware of the scale and depth of the
problems facing the UK economy, concluded Randall. He said the UK
is headed for two more years of "economic misery." Barber agreed
that the UK will suffer a "severe recession" and said the shape of
the banking system will change dramatically. Jenkins said the real
problem is the British "obsession" with banks, adding that HMG
"wasted stupefying amounts of money on banks" which should have been
spent on the real economy and stimulating demand. Brummer, in
contrast, said he wouldn't be surprised if "green shoots" of
recovery begin to show because HMG has acted quickly.

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